UNITED
NATIONS
TD
United Nations
Conference
on Trade and
Development
Distr.
GENERAL
TD/RBP/CONF.6/5/Rev.1
TD/B/COM.2/CLP/53
13 October 2006
Original: ENGLISH
TRADE AND DEVELOPMENT BOARD
Commission on Investment, Technology and Related Financial Issues
Intergovernmental Group of Experts on Competition Law and Policy
Seventh session
Geneva, 31 October – 2 November 2006
Item 3 (i) of the provisional agenda
RECENT IMPORTANT CASES INVOLVING MORE THAN
ONE COUNTRY
Report by the UNCTAD secretariat*
Executive summary
This report reviews a number of recent cases involving restrictive business practices including
mergers/acquisitions in developed and developing countries and economies in transition. Some of the
cases have cross border aspects to the extent that they involve other countries or firms that are foreign
and have operations in the country in focus. This report exemplifies the fact that enforcement of
competition law in developing countries has been improving over time and greater effort and supports
both nationally and through cooperation from other competition authorities. Cooperation between
competition authorities from both developed and developing countries at bilateral and regional level
has enhanced case handling capabilities in developing countries. Developing countries have also
continued to review implementation methodologies by adopting conventional means for example the
introduction of leniency programs in cartel investigations. Developing countries continue to face new
challenges as efforts to effectively tackle cases are stepped up. Some challenges emanate from
structural weaknesses of competition legislations, others from policy conflicts between competition
and other government policies for example those governing sector regulators, which may or may not
have concurrent jurisdiction with competition authority on competition maters. Expanded coverage of
competition enforcement to areas, which were exclusively exempted in the past, for example public
utilities, and activities of professional associations, is an additional challenge to competition
enforcement.
*
This document was submitted on the above-mentioned date as a result of processing delays.
GE.06-52123
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CONTENTS
Page
INTRODUCTION AND OVERVIEW ...........................................................................
I.
II.
3
ANTICOMPETITIVE PRACTICES ..................................................................
1 Lithuania: Abuse of dominance in the petroleum industry..............................
2. Italy: Cartel in the baby milk market ...............................................................
3. Serbia: Abuse of dominance by a public company..........................................
4. Portugal: Setting of prices by professional associations in the health sector
(animal and human) .........................................................................................
5. Brazil: Dawn raid cartel case in the crushed rock market................................
6. Republic of Korea: Cartel in the telecommunications sector ..........................
5
5
6
7
9
10
11
MERGERS AND ACQUISITIONS.....................................................................
7. South Africa: Merger in the shipping industry approved with conditions.......
8. Zambia: International takeover in the telecommunications sector ..................
9. Brazil: Merger in the Brazilian iron ore market...............................................
10. Malawi: Merger in the petroleum sector..........................................................
12
12
13
14
15
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INTRODUCTION AND OVERVIEW
1.
The current report is part of a continuous series reviewing competition cases
prepared by UNCTAD secretariat with special focus to developing countries competition law
enforcement progress. However, the report looks at some cases from developed countries
with specific lessons on the implementation of competition laws. This case report is in line
with paragraph 9 and 12 of the resolution adopted at the 4th United Nations Conference to
Review all Aspects of the Set of Multilaterally Agreed Principles and Rules for the Control of
Restrictive Business Practices.† Paragraph 9 requests the UNCTAD Secretariat to ‘take stock
of anticompetitive cases with effects in more than one country, and the problems encountered
in investigating the cases, to study the degree of efficiency of cooperation between
competition authorities and Governments in solving them’, while paragraph 12 requests the
Secretariat to continue to publish certain documents on a regular basis and to make them
available on the Internet, including ‘an information note on recent important competition
cases, with special reference to competition cases involving more than one country, and
taking in account information received from member States.”
2.
Furthermore, subsequent Intergovernmental Group of Experts (IGE) meetings
between 2001 to 2003 requested UNCTAD Secretariat to prepare for consideration by the
following session of the IGE "an information note on recent important cases, with special
reference to competition cases involving more than one country, taking into account
information to be received from member States" and not later than 31 January of every
preceding year. Paragraph 6 (c) of the 2004 IGE meeting report requested UNCTAD
secretariat to prepare for consideration by the Fifth United Nations Conference to Review all
Aspects of the Set of Multilaterally Agreed Principles and Rules for the Control of Restrictive
Business Practices, "an information note on recent important cases, with special reference to
competition cases involving more than one country, and taking into account information to be
received from member States no later than 31 January 2005"‡. The Fifth United Nations
Conference to Review all Aspects of the Set of Multilaterally Agreed Principles and Rules for
the Control of Restrictive Business Practices (November 2005) ratified the request for a
report cases to be reviewed by the following session of the IGE"…., taking into account
information to be received from member States"§
3.
In accordance with the mandate, the cases reviewed in this report have been selected
from materials provided by some member States in response to a request for information sent
out by the UNCTAD secretariat and from other publicly available materials. Taking into
account the above-mentioned terms of the mandate, and the relatively few cases involving
developing countries for which it was possible to obtain information, a broad range of cases
was selected for review, including those: (a) having effects upon the markets of more than
one country, including a developing country; (b) involving enterprises having their
headquarters outside of the country where the case has been considered; or (c) cases from
developed and developing countries involving issues or sectors which are relevant
internationally, particularly for developing countries.
†
UNCTAD document TD/RBP/CONF.5/15 of 4 October 2000.
See UNCTAD document TD/B/COM.2/CLP/48 of 22 December 2004.
§
UNCTAD document TD/B/COM.2/CLP/53.
‡
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4.
The cases reviewed in this report show that, in the context of globalization and
liberalization, competition law and polices are becoming a key element in some developing
countries’ economic policies. It also shows that competition enforcement in many countries
assist in addressing anti-competitive practices which are prevalent in markets of developed,
developing, least developed countries, and economies in transition. However, the relatively
small pool of cases and countries from which these samples were drawn suggests that more
efforts need to be made by more countries to adopt and effectively enforce competition laws
and to create and/or strengthen a competition culture in their markets. Some of the cases
reviewed demonstrate that anti-competitive practices such as collusion, abuse of dominant
position, occur in a variety of sectors and that in many instances anti-competitive practices
involve a mixture of vertical and horizontal illegal actions. Similarly, competition authorities
are increasingly called to assess the, potential anti-competitive effects of mergers and
acquisitions, either having a domestic or international dimension. The present report deals
with implementation successes, conflict or coordination of various policies and also
challenges. However, there is a still a lot of room for improvement of enforcement techniques
and also coordination between countries with newly established competition authorities,
particularly in developing countries and economies in transition with those of developed
countries.
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I. ANTICOMPETITIVE PRACTICES
1. Lithuania: Abuse of dominance in the petroleum industry**
Brief description
5.
The Competition Council of Lithuania initiated investigations in July 2004 to
establish whether the actions of AB Mažeikių nafta in the period between 2002 and 2004
could have caused gasoline and diesel fuel prices in Lithuania to be higher than those in other
Baltic States, and to determine whether the differences in fuel prices in Lithuania, Latvia and
Estonia could have resulted from restrictive actions by the company.
6.
The investigation established that fuel prices in Lithuania were higher than in Latvia
and Estonia and that this was partly due to different conditions in different territories of the
Baltic States market, such as excise conversion differences, the fuel reserve accumulation
requirement effective in Lithuania, etc. In addition, abuse of the dominant position by AB
Mažeikių nafta in the market also caused the price differentials. As the only producer and the
main supplier of oil products on the Lithuanian, Latvian and Estonian markets in 2002-2004
AB Mažeikių nafta dominated the Baltic States gasoline and diesel fuel markets and was able
to make unilateral decisions, while concluding contracts and selling oil products. The
company did not make operational any clear-cut and transparent pricing system or a uniform
discount system applicable for identical fuel purchases in Lithuania, Latvia and Estonia. This
affected fuel purchasers in the three Baltic States who were placed in different competitive
conditions. The trade between member States was affected because AB Mažeikių nafta was
marketing the major part of its production in the Baltic States. Hence, Lithuanian purchasers
would acquire fuels at higher prices than Latvian and Estonian buyers. Since the fuel was
marketed in Lithuania at higher prices, Lithuanian oil products consumers were
disadvantaged compared to those of Latvia and Estonia.
7.
A range of actions restricting trade performed by AB Mažeikių nafta was also
recognized as evidence of abuse of dominance. Those included restricted possibilities of the
buyers to freely choose amounts of purchases and discounts, and efforts were made to protect
the gasoline and diesel fuel markets from import and potential importers, by granting some
inadequate rebates to UAB Lukoil Baltija, UAB Lietuva Statoil and UAB Neste Lietuva, thus
eventually discriminating other minor purchasers-wholesalers. AB Mažeikių nafta was
operating an economically ungrounded rebate system under which minor wholesalers found it
unsound to purchase oil products from AB Mažeikių nafta, since they could acquire the same
products at a lower cost from Lukoil, Statoil and Neste.
8.
The Competition Council concluded that AB Mažeikių nafta was abusing its
dominant position by discriminating against Lithuanian, Estonian and Latvian purchasers on
a territorial basis. AB Mažeikių nafta could also affect trade between member States by
forcing those enterprises operating in the Lithuanian, Latvian and Estonian markets to
conclude contracts covering the purchase of the amount of oil products meeting the major
demand of undertakings in oil products.
**
Based on information received from the Competition Council of Lithuania.
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9.
On 22 December 2005 the Competition Council adopted a resolution following the
completion of the investigation on the compliance of actions of AB Mažeikių nafta with the
requirements of the Law on Competition of the Republic of Lithuania and Article 82 of the
EC Treaty. Having examined the facts and circumstances established in the course of the
investigation the Competition Council recognized that AB Mažeikių nafta had violated Article
9 of the Law on Competition on the prohibition to abuse a dominant position. The
Competition Council also concluded the infringement of Article 82 of the EC Treaty. This is
the first ever case after the accession of Lithuania to the EU in May 2004 and the
enforcement therein of the European competition rules, that a Lithuanian company has been
acknowledged to abuse its dominant position in a part of the common market of the EU and
by its actions affected trade between Member States. AB Mažeikių nafta was obligated to
discontinue the restrictive practices. In view of the established infringements and acting
according to the Rules concerning the setting of the amount of a fine, the Competition
Council imposed upon AB Mažeikių nafta a fine of LTL 32 million.
Commentary
10.
This case exemplifies that regional competition laws and in this case the EU Treaty
can assist competition authorities effectively tackle anticompetitive practices in their own
jurisdictions. In this case Lithuania invoked the provisions of both domestic competition law
and Community competition law. In cases of abuse of dominance, which are sometimes
difficult to prove, regional law can enhance the capability to deal with such cases. It also
opens the case to examination of the effects of trade between member States. In the absence
of such regional cooperation and statutes to deal with cross-border anticompetitive practices,
such cases may go unresolved in many of the countries which are distorting the operations of
free and competitive markets.
2. Italy: Cartel in the baby milk market††
Brief description
11.
The Italian Competition Authority received complaints from consumers and
consumer associations concerning a suspected cartel in the Italian baby milk market. The
complaints indicated that prices for baby milk in Italy were higher compared to those in other
European countries. At the same time, in May 2004, the Italian Health Minister announced
that after the invitation of the Minister, baby milk suppliers had agreed to reduce retail prices
by 10 per cent. As a consequence, the Competition Authority initiated an investigation in
order to assess whether the high prices and the subsequent reductions constituted a restrictive
agreement as stipulated in Article 81 of EC Law.
12.
In the absence of parallel imports to create competition in the market the
Competition Authority suspected that there might be anticompetitive behaviour between
national affiliates of the companies (which happened to be multinationals) involved aimed at
impeding the price arbitrage. Invoking EC Regulation 172003, the Italian Competition
Authority requested the French, German and Spanish Competition Authorities to inspect the
premises of some of the firms against whom the proceedings had been initiated, in order to
share the relevant information and documents concerning the case. The corresponding
authorities were very efficient in the inspection activities requested by the Italian Competition
††
Based on information received by the UNCTAD secretariat from the Italian Competition Authority.
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Authority and the delivery of the documents seized (this was the first case of cooperation
among the authorities mentioned).
13.
After careful analyses of the materials received, no documentary proof was found of
the existence of a general agreement to impede parallel imports. Consequently, the absence of
parallel imports from other EU Member States could not be attributed to a cross-border
collusion strategy among baby milk producers.
14.
However, the Competition Authority considered the act of direct contacts among
producers in the case of Health Minister's invitation to reduce prices and the fact that they
agreed not to reduce prices with more than 10 per cent was a direct proof of collusion. The
fact that the milk producers in the meeting with the Health Minister referred to the notion of
market disruption also strengthened the Authority's conviction that the wide availability of
retail prices information on the web was an important coordination instrument. The parties
defended themselves by characterizing the Italian market as having low demand, high costs
of distribution, and high promotional costs among others. Nevertheless, they were not able to
explain the relatively high profits they had gained in the Italian market. At the end of the
investigations, the Italian Competition Authority fined Heinz Italy, Plada, Nestlè Italy,
Nutricia, Milupa, Humana Italy and Mille Italy for anticompetitive arrangements according to
the Italian Competition Law.
Commentary
15.
This case is an example of exchange of information between competition authorities
in the process of case investigations. It also shows that actions of other branches of the
government can either assist or block competition authorities from resolving competition
cases. In this case the Italian Health Minister gave the competition authority alternative
grounds to pursue the collusion case after it was found that there was insufficient proof with
regard to parallel imports. This brings in the importance of coordination and cooperation
between government agents and in this case the Health Ministry and the Competition
Authority.
3. Serbia: Abuse of dominance by a public company‡‡
Brief description
16.
The Antimonopoly Commission of Serbia initiated an investigation into the
activities of a public company ‘Aerodrom Beograd’ (hereinafter: Aerodrom Beograd) which
is engaged in rendering the following airport services: use of central infrastructure and
ground handling, as well as the use of air bridges and landing (landing and lightening) by
domestic and foreign airline companies. When charging for these services, Aerodrom
Beograd applied different tariffs to domestic and foreign airlines in international traffic,
although it rendered identical services to these two categories.
17.
The Board of Airlines Representatives (BAR) in Serbia and Montenegro submitted a
notification to the Antimonopoly Department within the Ministry of Trade, Tourism and
Services of the Republic of Serbia claiming that Aerodrom Beograd has been applying
different tariff to domestic and foreign airline companies when charging identical services,
‡‡
Based on information received by the UNCTAD secretariat from the Competition Authority of Serbia.
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i.e. that it charged foreign airlines a significantly higher price, as much as double the amount
compared to the price charged to domestic airline companies. BAR also provided a document
listing the different tariffs that were applied, i.e. one tariff for airport services charged to
domestic airline company in international traffic and another for airport services charged to
foreign airline companies.
18.
The Antimonopoly Commission initiated and conducted administrative procedure in
order to gather data, check statements contained in the notifications and take statements from
person in charge in order to establish facts and evidence as to whether the abuse of
monopolistic position existed.
19.
On the basis of analysis of all available and collected data, as well as evidence
established within the procedure conducted by the Commission, the procedure was finalized
by the resolution issued by the Ministry of Trade, Tourism and Services establishing that
Aerodrom Beograd abused its monopolistic position because it charged services in
international traffic at discriminatory prices between domestic and foreign airlines, thus
creating unequal conditions for foreign airlines. Aerodrom Beograd was ordered to apply
identical conditions in rendering airport services in international traffic, i.e. to charge
identical prices for airport services for both domestic and foreign airlines, and to prepare a
new tariff structure and submit it to domestic and foreign airline companies.
20.
Aerodrom Beograd lodged an appeal against the resolution to the second instance
authority – the Administrative Commission of the Government, which dismissed the appeal
as unfounded, i.e. confirmed the first instance resolution issued by the Ministry of Trade,
Tourism and Services.
21.
The Antimonopoly Department received a letter from Aerodrom Beograd containing
information that it had acted pursuant to the resolution, i.e. a uniform tariff for complete
international services in international air traffic has been adopted. The said tariff structure
was distributed to all airline companies using the services of Aerodrom Beograd, with the
effective date of coming into force, as 1 December 2005.
22.
This case was handled within the framework of the Antimonopoly Law of 1996.
Serbia has since adopted a new Law on Protection of Competition in September 2005.
Commentary
23.
This case is an example of a public enterprise engaging in anti-competitive practices.
By their nature, many public enterprises are monopolies or oligopolies and the abuse of their
dominant position can jeopardize the development of free competitive markets. In the case in
point, the use of discriminative tariffs between domestic and foreign airline companies was in
itself an interference of the market by creating an undue advantage for the locals. The
resolution of this case allowed the local and international airline companies to compete fairly
on price. For public companies to understand their obligations under the competition law,
specific awareness programmes geared towards their operations need to develop by
competition authorities.
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4. Portugal: Setting of prices by professional associations in the health sector
(animal and human)§§
Brief description
Portuguese Veterinarians Association
24.
The Portuguese Competition Authority investigated the Veterinarians Association’s
deontological code of conduct in an attempt to find out whether there are inherent
anticompetitive practices. The Authority found out that the code concerning fees charged for
services in independent practice by a veterinarian were set on the basis of regulation by their
association. The National Veterinarians' Association recommended the tables of charges
applicable in each region. The Portuguese Competition Law and the EC Treaty prohibit
decisions by associations of undertakings that seek to directly or indirectly fix the purchase or
sale price (of goods and services). The two legal frameworks also prohibit any interference in
the setting of prices by market forces, either causing them to fall or rise artificially.
25.
The Portuguese Competition Authority imposed a fine on the Portuguese
Veterinarians' Association of approximately 76,000 Euros on the grounds of the imposition of
minimum charges for veterinary services.
26.
This was the Portuguese Competition Authority's first decision involving an
infringement of the competition rules set out in the EC treaty issued under the new
decentralized system for applying Community Competition Rules approved by EC
Regulation 17/2003.
Portuguese Dental Association
27.
In another investigation in the provision of professional services, the Portuguese
Competition Commission found that the Portuguese Dental Association had approved a
deontological code on dental fees. The code specified the criteria and indications relating to
minimum and maximum fees for dentistry carried out by independent dentists, i.e. as a liberal
profession. For the purposes of Portuguese and Community rules, a professional organization
is considered an association of undertakings when it regulates the economic behaviour of all
members of a certain liberal profession.
28.
The Portuguese Competition Authority found that the imposition by the Dental
Association of minimum and maximum fees for dental services interfered with free market
forces. Therefore, the Authority ruled that some provisions of the Deontological Code
infringed national and European competition law. A fine of 160,000 Euros was imposed on
the Portuguese Dental Association.
Commentary
29.
The activities of professional associations are increasingly becoming a focus of
competition enforcement agencies. In many instances, activities of professional associations
are exempted from the provisions of competition law. However, the exemption is usually
explicit on activities “which relate to the development and enforcement of professional
§§
Based on information received by the UNCTAD secretariat from the Portuguese Competition Authority.
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standards of competence for the protection of the public”.*** Most competition laws prohibit
price fixing agreements under the illegal per se rule and competition authorities believe that
certain actions taken by professional associations when setting their prices cannot be in the
interest of the public. This realization has led to more cases touching on the activities of
professional associations being handled by competition authorities.
5. Brazil: Dawn raid cartel case in the crushed rock market†††
Brief description
30.
The first antitrust “dawn raid” in the history of Brazil was conducted by Secretariat
of Economic Law (SDE) in July 2003 to investigate a possible cartel in the market of crushed
rock, an essential raw material in the civil construction industry.
31.
The investigation set out through an anonymous complaint, which had described the
cartel’s procedure and organization. These facts, concerted with others investigation results,
permitted the SDE to request that the Federal Attorney obtain a judicial warrant to execute
unannounced search warrants (dawn raid) - investigative proceeding which is stated in
Brazilian Competition Law (Lei 8884/94) at the article 35-A. The raid was performed in the
offices of the State of São Paulo Flintstone Industries Association (Sindipedras), which
congregates 21 companies accounted for 70 per cent of the crushed rock produced in São
Paulo, and had allegedly been operating a cartel for the previous two years. An analysis of the
materials seized in the dawn raid led SDE to initiate an administrative proceeding to
investigate price fixing, market segmentation, production restriction, and bid rigging, illegal
practices provided in Articles 20, I, II, III e IV and 21, I, III, VIII, X, XI, XII, XIII e XIV,
Law 8884/94.
32.
In November 2004, after a short period of investigation, SDE completed its
investigation and recommended that CADE find unlawful collusion by Sindipedras and 18 of
the 21 member companies. SDE based its recommendation on evidence that the companies:
(a) maintained pricing data and daily sales figures in a central computer file at Sindipedras;
(b) met on the association’s premises to set cartel policies; (c) levied fines for failure to
comply with group decisions; (d) divided customers and allocated sales quotas (including
sales arising from bids tendered in public competitions); and (e) required a surcharge on sales
made to customers assigned to other companies.
33.
CADE issued its decision in July 2005, agreeing with SDE’s analysis and fining the
defendant companies amounts ranging from 15 to 20 per cent of their 2001 gross revenues
(which was the biggest fine ever imposed by CADE), depending on the degree of their
involvement in the cartels’ administration. SDE also provided the evidence it had seized to
the criminal enforcement authorities (cartel is also a crime according to Law 8137/90, the
Brazil’s economic crimes law), which resulted in the first criminal indictment for cartel in
Brazil against 14 participants. In this criminal action, most of participants agreed with the
criminal prosecutors’ proposition (case’s suspension and other fines). Therefore, the criminal
action was suspended against these participants.
***
†††
Section 3 (g) of the Malawi Competition and Fair Trading Act.
Based on information received by UNCTAD secretariat from the Brazilian Competition Authority.
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Commentary
34.
Collusion in heavy investment industries in particular in ones that feed the
construction industries has been suspected to be prevalent in many developing countries. In
many cases, the evidence to prosecute collusion incidences is usually lacking. This case can
therefore be seen as a success story of fighting cartels using the "dawn raid" method. Since
dawn raids require resources and coordination between different agents, this case is a good
example of how competition regulation institutions can work together in collaboration with
other law enforcers to burst cartels.
6. Republic of Korea: Cartel in the telecommunications sector‡‡‡
Brief description
35.
The Korea Fair Trade Commission (KFTC) was alerted of an alleged collusive
agreement between two competing companies in the Republic of Korea’s telecommunication
market in early January 2005. It was alleged that Korea Telecom (KT) and Hanaro Telecom
had met several times between April and June 2003 in order to fix prices. At these meetings,
KT requested that Hanaro raise its rates for inner-city calls to a level matching or similar to
those of KT. In return, KT offered to concede 1 per cent of its market share per year to
Hanaro for the following 5 years. At that time, Hanaro's rates for the services were about half
those of KT. Hanaro demanded that KT give up 2 per cent market share each year. They
finally agreed on 1.2 per cent concession of market share per year in return for reducing the
difference of the price to a 10 per cent.
36.
KFTC initiated preliminary investigation into this case and was able to gather some
useful evidence towards proving the cartel to be illegal under Korean Competition Law, the
Monopoly Regulation and Fair Trade Act. Nevertheless, the acquired indirect and/or
circumstantial evidence was not sufficient to bring the case before the full commission.
Fortunately, KFTC acquired some direct evidence to prove this price-fixing cartel with the
help of Hanaro Telecom (one of the cartel members) during the full-fledged investigation.
Hanaro actively cooperated with the FTC until the end of the investigation and provided
substantial evidence.
37.
In its defence, KT asserted that the price fixing was aided, and somewhat fine-tuned
and overseen, by the Ministry of Information and Communication (MIC) in order to keep
latecomer Hanaro Telecom viable in the market. KT, thus, argued that the respondents should
be exonerated from any violation according to the rule of "state-aided cartel", corresponding
to "state-action doctrine" established by the U.S. Supreme Court and accepted by almost, but
not all, jurisdictions. During the investigation and hearing, MIC admitted that it presided the
meeting to avert cut-throat competition, but strongly denied its involvement in the
formulation of price-fixing cartel. The KFTC concluded that the cartel had not met the
requirements for qualifying the doctrine and therefore the respondents could not be exempted
from the violation.
38.
On 25 May 2005, the KFTC announced that it had imposed record high surcharge,
equivalent to administrative fine, against these two major fixed-line telecom operators for
colluding on the rates for fixed-line local call service. KT and Hanaro Telecom were fined a
‡‡‡
Base on information obtained from the Korea Federal Trade Commission website (http://www.ftc.gov).
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total of 120 billion Won, tantamount to 120 million U.S. Dollars. KT, the Republic of Korea's
largest fixed-line telecom’s company was fined a total of 116 billion Won, which is the
largest administrative fine ever imposed on a single company by the Korean Competition
Agency.
Commentary
39.
This case exemplifies the use of leniency programme when dealing with cartel cases.
The revision of competition law provisions in the last decade has been characterized with the
introduction of leniency programmes among other emerging issues in competition
enforcement. The introduction of such programmes has increased cartel detection and
prosecution in both developed and developing countries. It is a good direction to move for
countries with cartel provisions, either by way of regulations or inclusion in the competition
law. For countries in the process of drafting or revising competition laws, they may consider
developing cartel provisions and also a leniency programme with the initial implementation
regulations.
II. MERGERS AND ACQUISITIONS
7. South Africa: Merger in the shipping industry approved with conditions§§§
Brief description
40.
The South African Competition Commission analysed a merger proposal between
AP Moller-Maersk (“Maersk”) and Royal P&O Nedlloyd N.V. (“PONL”), who are both in
the shipping industry. The two sought to enter into a merger protocol whereby Maersk
undertook to make a public offer for the entire ordinary share capital of PONL. Subsequent to
the transaction, Maersk would acquire sole control of PONL.
41.
The Commission’s investigation established that there are barriers to entry in the
market caused in part by the agreements on trading conditions in the industry and the cost of
entering the market. However, in the past three years there had been entrants into the market
in the South Africa/Middle East trade route, e.g. Global Container Line and MIA, and in the
South Africa/ Far East trade routes, e.g. Maruba. In the South Africa/Europe trade route there
had been no new entrants due to port constraints in South African ports. South African ports
are relatively small and cannot accommodate certain types of large vessels.
42.
The South African Competition Commission recommended a conditional approval
of the proposed merger between Maersk and PONL. In view of the above and other
information, the transaction was approved subject to certain actions. The conditions entailed
the divestiture of PONL’s assets, rights and obligations to its liner shipping activities on the
South Africa/Europe and South Africa/North America routes, which will rectify the market
structure to the pre-merger situation.
43.
The transaction was notified to competition authorities in the European Union, the
USA, Australia, Brazil, Bulgaria, Israel, New Zealand, Romania, Republic of Korea and
Turkey. The South African Competition Commission and the European Commission were in
§§§
Based on information received by UNCTAD secretariat from the South African Competition Commission.
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contact during the investigation and shared information, with the parties’ consent. The
European Commission cleared the merger with conditions whilst the US antitrust authorities
cleared the merger without conditions.
Commentary
44.
This case shows the importance of sharing information when analysing merger
applications. It also exemplifies the use of pre-merger notification criteria, which allows
competition authorities to analyse the possible effects of a merger before it is consummated
and design corrective measures in areas where competition is foreseen to be compromised.
This ensures that the market will remain competitive after the merger is consummated by
foreclosing abuse of dominance situations and other anti-competitive practices.
8. Zambia: International takeover in the telecommunications sector****
Brief description
45.
On 15 June 2005 the Zambia Competition Commission received a formal
notification from Telecel Zambia Limited by the MTN Group Limited of South Africa
(MTN) The Board of the Zambia Competition Commission took note that on 15 June 2005,
the MTN Group Limited of South Africa (MTN) made a formal notification to the Zambia
Competition Commission for the takeover of 100 per cent shareholding in Telecel Zambia
Limited. The Board also took cognisance to the fact that after preliminary market inquiries
showed no substantive adverse effects in the relevant market, an Interim Authorisation was
granted to the parties by Commission on 22 June 2005.
46.
The Board of Commissioners considered that Telecel’s acquisition of MTN was
more likely to escalate into pro-competitive benefits for the mobile telecommunication
market as MTN would be required to invest a substantial amount of their market
capitalization in MTN Zambia for it to be competitive. MTN’s expertise in the mobile sector
in terms telecommunication technology, management and brand marketing was likely to
enhance Telecel’s competitiveness and image on the Zambian market. Furthermore, the
planned expansion programme would likely lead to increased employment and the retraining
of staff at Telecel would enhance the technical competencies to add to the competitiveness of
the Zambian telecommunications industry.
47.
The Board deliberated over the application and determined to grant final
authorization for the transaction to take effect in Zambia, subject to the signing of a
memorandum of undertakings, as follows:
(a) Ten per cent of the shares acquired by MTN must be warehoused in a Special
Purpose Vehicle (SPV) for the beneficial ownership of the Zambian public.
(b) After the Board of the Communications Authority of Zambia gives approval of
the transaction, the disposal of the 10 per cent stake for the benefit of the Zambian public
must be executed within 15-18 months.
(c) MTN shall develop and establish an effective mechanism aimed at facilitating
the ownership of the said 10 per cent of shares to the broader Zambian public.
****
Based on information received by UNCTAD Secretariat from Zambia Competition Commission.
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(d) MTN shall, within six months after taking over Telecel, identify a senior
management official to be a Trade Practices Compliance Officer, and the officer shall be in
constant touch with the Commission as regards implementation of the undertakings and
compliance with the provisions of the Competition and Fair Trading Act, CAP 417 of the
Laws of Zambia.
Commentary
48.
In many developed and developing countries the telecommunications sector was
under government control before the onset of liberalization and privatization programmes.
The importance of telecommunication services in the development of any country cannot be
over-emphasized. In addition, this sector is today experiencing tremendous changes in
technological growth and also regulation. Introduction of new products and services is taking
place at a very high late and is affecting all other sectors, which input on telecommunications.
On the other hand, mergers and acquisitions are now very frequent in this fast growing sector,
hence the importance of merger analysis to ensure that the competitive process is protected.
9. Brazil: Merger in the Brazilian iron ore market††††
Brief description
49.
In January 2005, the Secretariat of Economic Law (SDE) concluded the analysis of
one of the most important set of acquisitions ever examined by Brazilian Antitrust
Authorities. This case involved the leading Brazilian mining corporation CVRD (Companhia
Vale do Rio Doce) and consisted of the acquisition of four mining companies along with the
two main railways in south-eastern Brazil, as well as the divestiture of cross-equity holding
CVRD and one of the major Brazilian steel producers, Companhia Siderurgica Nacional.
50.
In Brazil, according to Law 8884/94 (Article 54 onwards), mergers and acquisitions
are submitted to the SDE, a division of the Ministry of Justice, who sends the cases to the
Secretariat of Economic Monitoring (SEAE), in the Ministry of Finance, and after the latter’s
analysis theses cases are sent to Administrative Council for Economic Defence (CADE) to be
judged. In general, these cases are usually analysed by the Antitrust Authorities ex post,
following a Structure-Conduct-Performance (SCP) framework close to the Merger Guidelines
applied in the USA. However, this framework was unable to address this set of acquisitions
by CVRD, a newly privatized national champion. Therefore, SDE undertook a tough
econometric exercise to reinforce the definition of the relevant geographic market and to test
for a structural break in the price series.
51.
In this case, it was observed that CVRD dominated the iron ore market by acquiring
its main competitors and the railway and port logistics involved. Prices analysed by SDE
showed clearly that pricing of iron ore in the domestic market changed significantly some
time after the acquisitions.
52.
SEAE and SDE concluded that the acquisitions significantly raised CVRD’s marketshare in three types of iron ore, as well as in railways and ports through which the products
are transported and that, as a result, it would allow CVRD to exercise market power in the
iron ore segments, as well as restrain access to the infrastructure. Based on these findings and
††††
Based on information received by UNCTAD secretariat from the Brazilian Competition Authority.
TD/RBP/CONF.6/5/Rev.1
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page 15
with the purpose to guarantee a certain degree of competition in these markets, the
Secretariats suggested some remedies as conditions for the approval of the acquisitions.
53.
Both Secretariats also suggested that CADE approved the divestiture of the crossequity holding between CVRD and CSN, with the recommendation to prohibit the
preferential agreement that allowed CVRD to buy all the iron ore produced by CSN at the
“Casa de Pedra” mine. It is interesting to note that SEAE’s and SDE’s recommendations
regarding the mining companies’ acquisition were different. In essence, SEAE blocked one of
the deals and suggested the divestiture of additional mines in order to address anticompetitive
concerns in iron ore and infrastructure altogether. SDE’s recommendations, otherwise,
focused on divestiture in infrastructure and considered that the prohibition of the preferential
agreement that allowed CVRD to buy all the iron ore produced by CSN at Casa de Pedra
mine would be enough to guarantee competition in the iron ore segment as well.
54.
In January 2005, the case was sent to CADE to be ruled, and the judgment occurred
in July 2005. CADE, agreeing with SDE’s analysis, imposed these structural remedies: (i)
Exclusion of the “Clause of Preference” of the “Casa de Pedra” signed agreement (crossdivestiture CVRD-CSN) and to sell Ferteco or (ii) Consolidation of the MBR and Ferteco’s
stakes in the MRS railway into a single stake, voided any veto power and CVRD must notify
BAS of any acquisition of iron ore reserves, and Ministry of Justice shall investigate any
mergers and acquisitions involving CVRD in the last 5 years. Besides, ANTT (the regulatory
agency in charge of land transportation) approved new accounting plan for CVRD’s own
railway to better identify attempts to discriminate users. After the CADE judgment, the
defendants appealed to the judicial courts in order to suspend CADE’s decision. The case is
pending judgment in the judiciary.
Commentary
55.
In sectors where heavy investments are required, very few players are attracted to
such markets. The possibility of monopolistic situations with the likelihood of abuse of
dominance can be expected in such markets. The current case shows that competition
authorities can use the provisions of the law to institute structural remedies in form of
undertakings or conditions for merger/acquisition approval. This forecloses possible anticompetitive practices, which may result from a merger.
10. Malawi: Merger in the petroleum sector
Brief description
56.
On 13 October 2005, Total Malawi Limited lodged an application for authorization
of a takeover of Mobil Malawi Limited (Malawi) by Total Malawi Limited (Total) with the
Malawi Fair Trading Commission. Total and Mobil are subsidiaries of Total Outre-mer S.A
and Mobil Holdings (Europe and Africa) Limited, respectively. This is an international
merger, of which the two parties to the transaction each have a subsidiary in Malawi. At
international level, the merger has already been consummated. The parties were seeking a
similar arrangement to be authorized for consummation in Malawi.
57.
The Malawi Fair Trading Commission evaluated the merger application and also
conducted its own investigations. The relevant market was defined as the importation, supply
and distribution of petroleum products in Malawi. The combined final market share of the
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merged entity of Total and Mobil in Malawi would be 32 per cent, taking into account the
equilibrium shareholding rule in Petroleum Importers Limited (PIL). This would result into a
market concentration ratio for the top three players (CR3) in the relevant market of more than
70 per cent. However, the Total-Mobil merger accounts for 32 per cent of this concentration,
thus leaving about 68 per cent of the market to be in the control of competitors. This market
concentration is still open to more competition and thus the resultant concentration is not
likely to, in and of itself, alter competition in the relevant market.
58.
Since there is no oil refinery in Malawi, all petroleum products are imported into the
country, mainly through PIL; however, other operators with no shareholding in PIL, are
allowed to import their petroleum products separately. Neither merged entity of Total-Mobil
(32 per cent) nor the market leader BP (39 per cent) command a market share that can be
considered as dominant, therefore, the merged market share of Total and Mobil would not act
as a barrier to entry into the market for other operators as evidenced by the entry of Niot,
Injena and Energem over the past two years. However, the form of barriers to entry in the
relevant market worldwide exist in terms of high initial capital investment in storage facilities
and distribution facilities including exorbitant trade licence fees for new entrants.
59.
The Board of the Malawi Competition Commission authorized, on economic
efficiency grounds, the takeover of Mobil Malawi Limited by Total Malawi Limited subject
to the conditions stipulated here under. Consequently, in accordance with section 39 (2) of the
Competition and Fair Trading Act, Total should provide written undertakings aimed at
satisfying section 38 of the Act, namely that:
(a) the Takeover shall not in any way negatively affect employment levels of the
parties to the transaction vis-à-vis the merged entity;
(b)
there shall be no redundancies whatsoever as a result of the takeover;
(c) that Total should notify and obtain authorization from the Commission for any
dealership agreements entered into with any dealer or distributor of its products in Malawi.
This shall include all current agreements and any future agreements and any changes to the
said agreements from time to time;
(d) in the event that Total decides to import its fuel products outside the PIL
facility, such a decision should be notified for authorization to the Commission.
Commentary
60.
This case illustrates the importance of enforcing competition law in least developed
countries. This is an international merger with effects in Malawi. However, without the
enforcement of the competition law, Malawi would not have been able to analyse the effects
of this merger on the domestic market. In this case, the conditions attributed to the approval
of the merger enabled the competition authority to monitor the activities of the merged
enterprise.
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